The Liberal Party of Canada's white paper on carbon budget

BALANCING OUR CARBON BUDGET A New Approach for Large Industrial Emitters A White Paper by the Liberal Party of Canada MARCH 2007 © Liberal Party of Canada, 2007. All Rights Reserved. TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................... 4 A. INTRODUCTION .................................................................................................................. 6 B. OUR CARBON BUDGET ..................................................................................................... 8 C. PUTTING A PRICE ON CARBON — POLLUTER PAYS..................................................... 11 D. GREEN INNOVATION — THE GREEN INVESTMENT ACCOUNT .................................... 14 E. BUILDING CARBON MARKETS .......................................................................................... 18 F. CONCLUSION...................................................................................................................... 20 Annex I: Impact on the Cost of a Barrel of Oil from the Oilsands .............................................. 21 3 EXECUTIVE SUMMARY It is clear that Canada must do its part to address the most pressing ecological, economic and societal challenge of our times – Climate Change. At the same time, this unprecedented global threat presents an unparalleled opportunity for increased economic prosperity and renewal. If we invest in energy efficient and clean technologies we will become the leaders of the economy of tomorrow, but only by taking real and decisive action today. To do our part, Canada needs a national climate change plan, one that addresses the carbon pollution that is produced by all sectors of our economy. One of the cornerstones of this plan must be a strategy to reduce the carbon pollution from our large industrial emitters who are responsible for almost half of our total emissions. That is why the Liberal Party of Canada is putting forward a new approach to address this challenge faced by our largest industries. Our approach is based on a simple idea – the polluter pays. It will require Canada’s large industrial emitters to live within a ‘carbon budget’ that will: 1. Protect our environment; 2. Trigger significant reinvestment in job-rich green technologies in Canada; and 3. Help us to honour our international commitments under the Kyoto Protocol. We will put in place an absolute cap that will lead to actual emissions reductions. At its heart is an explicit rejection of the ‘intensity-based’ approach favoured by the Conservative government that will actually permit the carbon pollution that is released by our largest industries to increase, rather than decrease. Specifically, our approach will: 1. Establish an Absolute Emissions Cap – An absolute emissions cap or ‘carbon budget’ of our 1990 emissions level minus 6% - our Kyoto target - will come into effect on January 1, 2008 for the three largest industrial emitting sectors - electricity generation, upstream oil and gas and energy intensive industries. 2. Set a Carbon Budget - These sector-based caps will be used to allocate an annual carbon budget to each large industrial emitter in each of these three sectors. They will have to live within the carbon budget that is allocated to them. 3. Put a Price on Carbon - Those companies that don’t meet their carbon budget will be required to deposit $20 (growing to $30 by 2011) per excess tonne of carbon dioxide equivalent into a Green Investment Account (GIA) that will be created for each company.. Funds in a company’s GIA will be held in trust for them by an independent operating agency with participation on its board from the federal government, the provinces and the private and not-for-profit sectors. To be clear, this is not putting a price on every tonne of carbon pollution that a company releases; only those tonnes that are over that companies’ carbon budget. 4 Companies will have a strong incentive to make reductions in their own carbon pollution to avoid having to make a deposit of $20/tonne (growing to $30/tonne by 2011) in subsequent years. This kind of market mechanism allows companies the flexibility to decide how best to make those reductions. 4. Fuelling Green Innovation – With this plan companies will have an additional incentive to reduce their carbon pollution. They will be able to earn money back from their own Green Investment Account in order to make investments in their own green projects at a rate of $10/tonne every year. After 2012 they will earn their money back at a declining rate until 2017. This means that they will have an additional $10 incentive to reduce their carbon pollution and a strong incentive for early action. So companies have a double incentive to reduce their pollution: they can avoid paying the $20 (growing to $30 by 2011) deposit in subsequent years AND they can use $10/tonne each year from their GIA to invest in green projects to reduce their own carbon pollution.. To qualify for investment, green projects will need to create real, verifiable and incremental reductions in a company’s carbon pollution. Half of the value of the reductions over the lifetime of a qualified project can be withdrawn right away from a company’s GIA to cover the project’s start-up costs. The remainder can be withdrawn over the life of the project as its emissions reductions have been confirmed by the independent operating agency. Our approach will allow a company to withdraw all of the money it has deposited in its Green Investment Account, providing that it earns these funds back by reducing its carbon pollution. Any funds that are not allocated to a project within two years of their deposit would be administered by the same independent operating agency to be invested in other green projects and initiatives that result in verifiable and incremental reductions in carbon pollution. At least 80% of the investment will be in the province or territory from which the money was collected. All of these funds will be invested in Canada. 5. Establishing a carbon trading system – One of the primary reasons for adopting our approach is to give our companies a head start in preparing to participate in and profit from emerging global carbon markets. Companies who are below their ‘carbon budget’ will be able to trade their unused allotments to other Canadians firms. Companies would also be able to buy international emission credits certified under the Kyoto Protocol to offset up to 25% of the amount they exceed their carbon budget. Only projects that provide real, verifiable and incremental emission reductions will be eligible. Finally, we will introduce a system of incremental domestic offsets as quickly as possible. Companies will be able to use these offsets to reduce the amount that they are required to deposit that year into their Green Investment Account. This will ensure that industry has access to a full array of costeffective emissions reduction options. 5 A. INTRODUCTION The science is clear that climate change is real and that it is worsening because of human and, in particular, our industrial behaviour. The implications of this fact are becoming increasingly obvious – we are seeing rising global temperatures and growing numbers of severe weather events like storms, floods, heat waves and fires. For the health of our children, our environment and our economy, we must take action. A Liberal Government will take real action to combat climate change, to protect our future, and to place our economy on a path to a prosperous, green future. As overwhelming as a global challenge like climate change can seem, it also represents a huge opportunity. If we can reduce our reliance on carbon fuels, increase our energy efficiency and expand our leadership in green technology use, then we can set the standard for the sustainable economies of the future. A true win-win is within our reach: a healthier environment and a more competitive economy. In April 2005, the former Liberal government began to implement an approach, outlined in our Project Green, for regulating Large Final Emitters (a government term for our large industrial emitters – about 700 in all across Canada) and reducing the amount of carbon pollution that they produce each year. These large industrial emitters are collectively responsible for almost half of the carbon pollution that we produce as a country. Unfortunately, however, time is now wasting and we still do not have an effective approach in place to deal with these large emitters. The Conservative government chose not to implement our approach and instead has spent more than a year cancelling environmental initiatives, undermining Kyoto and squandering our chance to make significant progress in addressing this critical issue. Fixing the Clean Air Act The Conservative government claims that we need to start over and have proposed a “Clean Air Act” that, if it had gone forward as they proposed, would have allowed companies to increase their total emissions of carbon pollution. This is simply a cover for inaction. Canada already has the laws that we need to reduce the carbon pollution that we produce – we just need the will to use them. If we want a true “Clean Air Act”, one that is worthy of its name, we have to make sure that it produces real, verifiable emissions reductions that will benefit all Canadians. Recognizing the need for immediate action, and recognizing the opportunity that the Conservative government has squandered, a Liberal Government will introduce a fair and effective approach for reducing the carbon pollution from our large industrial emitters that can be implemented without further delay. Our plan is based on a simple principle - polluter pays – meaning that large industrial emitters should take responsibility for the emissions they produce. Nothing more. Nothing less. 6 In the process, our plan will lead to significant investments in green technologies and help us to honour our international commitment for the first (from 2008 to 2012) and subsequent phases of the Kyoto Protocol. Our new approach is simple, straightforward and is built on our three pillars: 1. Environmental Sustainability – Ensuring that there is an efficient mechanism in place to achieve real and measurable reductions in our carbon pollution. 2. Social Justice – Making polluters responsible for the pollution they produce – the polluter pays - and making sure that our approach is fair to all sectors of the economy and for all Canadians. 3. Economic Prosperity – Enabling our economy to become more competitive by encouraging our companies to invest in green technologies to improve our energy efficiency and resource productivity while reducing our carbon pollution. Our approach combines the strength of market-based mechanisms with the virtues of the common sense idea of a carbon budget. It is inspired by and builds upon the best proposals that were brought before the special House Committee struck to rework the Government’s poorly received and comically misnamed Clean Air Act. 7 B. OUR CARBON BUDGET Every family understands the importance of a budget. We need to balance the money we spend with the money we earn. If we save money we can invest for the future. If we go into debt, we are poorer both now and in the future. The same tool can – and should – be used to manage the carbon that we produce. A Liberal Government will set a carbon budget for our country. This carbon budget will outline exactly how much carbon pollution each large industrial emitter and each sector can produce each year without causing us, as a country, to go over our national carbon budget. So how will we determine a fair carbon budget for our large industrial emitters? Fortunately, there is an objective, internationally accepted standard. In the first commitment period of the Kyoto Protocol from 2008 to 2012 we have committed as a country to reduce our carbon emissions to 6% under our 1990 emission levels. This Kyoto target is our national carbon budget. We are currently living far beyond our carbon budget and we have to take immediate action as a country to begin to get our carbon deficit under control. Currently, our large industrial emitters produce almost half of our total carbon pollution contributing significantly to our national carbon deficit. Any plan to help us live within our national carbon budget must include a practical and straightforward approach for reducing these emissions. This approach must be fair to all regions of the country and all sectors of the economy. We believe that the fairest way to allocate our national carbon budget is to group our large industrial emitters into three categories of similar companies or sectors (recognizing that each has a different growth rate) as follows: 1. Electricity Generation - Companies that use fossil fuels to produce electricity; 2. Upstream Oil and Gas - Companies that produce fossil fuels; and 3. Energy Intensive Industries1 - Companies that use fossil fuels derived energy to manufacture products and services. Based on these groupings, each sector can be allocated a fair carbon budget based on their actual emission of carbon pollution. This is the approach that was outlined in a recent proposal by the Pembina Institute.2 Table 1 (opposite) shows the total emissions for each of these three sectors in 1990. Each sector’s carbon budget will be equal to their 1990 emissions minus 6% or, to put it another way, to that sector’s share of our national carbon budget. For illustrative purposes this table also shows how much of a reduction each sector will need to make from the amount carbon pollution it is projected to produce in 2010 in order to live within their carbon budget. 8 Table 1: Heavy Industry Emissions (Mt CO2eq per year) (Megatonnes of Carbon Dioxide Equivalent) Electricity generation 1990 Carbon Budget (1990 – 6%, free emissions) Upstream oil and gas Energy Intensive industries Total 95 89 84 79 100 94 278 261 Projected 2010 “business as usual” emissions Volume of emissions reductions expected needed in 2010 Percentage Reduction that will be required 138 49 36% 145 66 46% 105 12 11% 388 127 33% Data Source: Pembina Institute, 2007. Note that numbers do not add perfectly due to rounding. The carbon budget or ‘cap’ for each sector will come into effect on January 1, 2008 and will be an absolute cap. Setting an absolute cap makes sure that each sector contributes in a fair and transparent way to making real and meaningful reductions in our carbon pollution. It also makes sure that no single industry can spend more than its fair share of our national carbon budget without reinvesting in its own emission reductions and that no industry is unfairly burdened in relation to its peers. After 2012 our national carbon budget will be lowered at predictable intervals to reflect our commitment to meeting aggressive longer term targets and making deeper reductions in our carbon pollution. A Liberal government would outline national reduction targets of: 2020 1990 minus 20% 2035 1990 minus 35% 2050 1990 minus 60 - 80% Our targets are aggressive but are consistent both with the science of preventing dangerous climate change and with leading international jurisdictions like the United Kingdom, European Union and the State of California.3 9 Finally, each company in each sector will be allocated an annual carbon budget within the sector’s overall carbon budget. These allocations will take into account many factors including: 1. Early, voluntary action – recognizing a company or sector that has already reduced its carbon pollution since 1990. Using 1990 as the starting point for measurement ensures that credit is given for early action. 2. Efficient reductions - allowing companies with multiple facilities to transfer emissions reductions at one facility to another and, in time, allowing trading among companies of their excess carbon budget and qualified offsets. 3. Fair treatment of growth – ensuring that companies with more rapid growth between 1990 and 2012 than the average for their sector receive a fair carbon budget. Under a Liberal Government, companies will decide for themselves how best to meet their carbon budget. In this way, market considerations will dictate the choices made and provide strong incentives for making real reductions in emissions. To summarize, • • The federal government will set an absolute cap for each sector of large industrial emitters, as described above, which will come into effect on January 1, 2008. These caps will be used to establish a carbon budget on a sector by sector basis from which individual companies will be allocated their own carbon budgets. 10 C. PUTTING A PRICE ON CARBON Polluter Pays Our large industrial emitters must have a strong incentive to adhere to their carbon budget. This incentive can be provided by establishing a price for each excess tonne of carbon that they produce over their carbon budget and by driving them to reinvest in a greener future. In a growing number of countries, the price of excess carbon emissions is set on the open market as part of a cap and trade system. This is the approach that has been taken in the European Union. It was the approach proposed under Project Green and it is the approach being pursued by leading North American jurisdictions including California and the New England states. Under most circumstances it takes a long time for a trading system to provide price stability and predictability going forward. The 1990 Clean Air Act in the U.S., which authorized emissions trading to control sulphur dioxide, came into effect five years before the commencement of trading in 1995. In October 2002 the European parliament voted to endorse the cap and trade scheme proposed by the European Commission. In January 2005, the EU carbon market was launched. It took two-and-a-half years to get going and additional time after that before it could establish a reasonably predictable price for reductions in carbon pollution. That is why we believe it is important to provide price stability and predictability for our large emitters through the first Kyoto commitment period. The Conservative government, however, is trying to run out the clock on the process of regulating our carbon pollution. In the process they are putting our environmental and economic health at risk. A Liberal Government will act. We will set out a price in regulation for each tonne of carbon pollution (one tonne of carbon dioxide equivalent) that is over a company’s carbon budget, starting on January 1, 2008, as follows: Year 2008 2009 2010 2011 2012 Price (per tonne of carbon dioxide equivalent) $20 $25 $25 $30 $30 We do not favour a Carbon Tax where money is transferred from companies to the federal government and is lost in general revenue. Under our approach companies will have access to every penny of their money to make investments in their own green projects. 11 Rather than paying money to the government for their excess carbon pollution companies will be required to make a deposit in their Green Investment Account (GIA) that will be held in trust for them by an independent operating agency. This agency will be fully independent and will have participation on its board from the federal and provincial governments, and the private and not for profit sectors. The agency will also administer the Green Investment Fund which will be discussed in greater detail, along with the Green Investment Accounts, in the next section of this paper. How do we know that these are reasonable and fair price levels? The price in the first year is lower than the current trading price of a tonne of emissions reductions on the European market during the Kyoto commitment period. At $30/tonne in the final two years the price will be at the lower end of the expected cost of carbon capture and storage and other promising technologies to reduce our carbon pollution. In other words, these are fair price points that will put Canada on an internationally competitive standing. We also know that it is very important to establish a reliable and relatively predictable price for carbon over the longer term. This will provide industry with the clarity and certainty that they need to make effective long-term investment decisions. Our approach will provide immediate price certainty until 2012. It will also provide a measure of longer-term certainty by signalling our intended future national carbon budgets in 2020, 2035 and 2050. It is our intention to harmonize the Canadian system with the emerging global carbon market as quickly as is feasible, while maintaining a sufficient price for carbon to drive long term innovation in Canada. To provide sufficient certainty and to drive clean energy innovation in Canada, we will ensure that the price in the Canadian system will be at least $30/tonne in 2013 and in subsequent years. To summarize, • In order to meet the need for immediate action to reduce our carbon pollution we will set out a reasonable and fair price for carbon pollution released by our large industrial emitters that is over their carbon budgets. After 2012 we will move as quickly as possible to harmonize the Canadian carbon pricing system with the emerging global carbon market. Each large industrial emitter will be required to make a deposit to its Green Investment Account every year equal to its emissions over its carbon budget. For example, a company that exceeded its carbon budget by 100 tonnes in 2008 will be required to deposit $2000 that year (growing to $3000 by 2011) into its Green Investment Account which it can later earn back by investing in green projects that the company owns. • 12 So what will this mean? For companies that exceed their carbon budget in the upstream oil and gas sector, the money that they deposit in their Green Investment Account will represent only a small fraction of the total cost of production and price of a barrel of oil***. For example, oil produced in the oil sands without any new technology will require a deposit to support future investments in carbon reductions of about $1.17USD a barrel. This investment is more than manageable when compared with the current price of oil (between $50 and $60USD per barrel) and the profits being made by harvesting Canada’s non-renewable energy resources. ***For an overview of the sources and calculations for the numbers above please see Annex I. 13 D. GREEN INNOVATION The Green Investment Account The most important solutions for our climate challenge can be found in the innovative capacity of our companies and our industries. Huge gains can be made in reducing our carbon pollution by providing them with clear and predictable regulation and appropriate incentives for action. The question is how to provide strong but fair incentives for action that produce real and measurable results. By setting a price for excess carbon (carbon pollution over a company’s carbon budget) we are providing a strong incentive for companies to reduce their carbon pollution. With a price of $20/tonne of excess carbon in 2008, companies will take advantage of any possible reductions in their carbon emissions that cost less than $20/tonne in order to avoid having to make a deposit in their Green Investment Account each and every year. This is the beauty of putting a price on carbon; it provides a strong incentive to act. Under our plan, 100% of the funds deposited in a company’s Green Investment Account (GIA) will be available for reinvestment by that company in green projects – providing a strong additional incentive to make early and deep reductions in carbon pollution. Companies will have up to two years to bring forward qualified projects in which to invest their GIA funds. For example, a company might bring forward a project to improve their own energy efficiency, to generate renewable energy or to capture and store the carbon dioxide that they produce. For each tonne of reduction in a qualifying project they will be able to withdraw $10/tonne per year (up to 2012) from their GIA. After 2012, reductions will be reduced in value over time from $9/tonne in 2013 to $5/tonne in 2017. Companies will not be able to access funds for reductions that will occur after 2017. Companies will be able to withdraw half of the expected value of the reductions in carbon pollution from a qualified project right away to pay for the project’s start up costs. The right to withdraw the remainder can be earned as the emissions reductions from the project are independently verified over its life. If a project produces additional reductions over and above those that were projected, companies will be able to withdraw additional funds from their GIA in recognition of these additional incremental reductions. 14 To qualify for investment, projects will need to produce real, verifiable and incremental emissions reductions before 2018 and meet the following basic standards that will be certified by the independent agency: 1. A real expectation of an amount of emissions reductions corresponding to the funds in the Green Investment Account that are being allocated to the project; 2. No increase in other pollutants; 3. Proof that emissions reductions are incremental (i.e., that they will not have occurred in the absence of this policy); and 4. Clear understanding of the ownership of the reductions that are produced in order to avoid double counting. If a company has not committed its funds to a qualifying project or initiative within two years after the funds were deposited then that money will be transferred to a Green Investment Fund (GIF). These funds will be managed by the same independent operating agency that holds the GIA funds in trust. They will be invested cost-effectively in projects to achieve real, verified and incremental reductions in carbon pollution, with priority given to near-term reductions. Every penny in the Green Investment Fund will be reinvested in green energy or other carbon pollution reduction projects in Canada. At least 80% of these funds will be invested in the province or territory from which the money was collected. Full information on each company’s emissions and the projects that they are undertaking will be made available in a timely manner on a public website in order to ensure the transparency and accountability of the system, and to earn public confidence. The appeal of our approach is the strong market-based incentives it creates to encourage emissions reductions and new investment in green technologies. Through our approach industry will have a strong incentive to pursue any opportunity to reduce their carbon emissions that costs them less than the $20-30 per tonne they will be required to deposit annually into their Green Investment Account. Successful emissions reductions will also benefit from a further $10/tonne incentive every year that will be withdrawn from their Green Investment Account. This will unleash the full potential of the private sector to develop innovative solutions to our climate challenge. Currently, data on carbon emissions is self-reported by industry based on estimations by experts. The quality of information available about a company's actual greenhouse gas emissions, however, is critical to the success of our proposed approach. We will ensure clear hard data needed to move forward with a carbon market quickly is tracked, recorded and audited so that we could achieve real and measurable results. This will put Canadian companies in a position to participate in and benefit more quickly from the emerging global carbon market. 15 Continuing our summary, • Every year each large industrial emitter will be required to make a deposit to its Green Investment Account equal to its emissions over its carbon budget. For example, a company that exceeded its carbon budget by 100 tonnes in 2008 will be required to deposit $2000 and up to $3000 a year by 2011 in its Green Investment Account which it could later invest in green projects. Money that is deposited into green investment accounts will be held for up to two years in trust so every company has a chance to propose incremental plans to reduce their own in-house emissions of carbon pollution. During this time, deposits can be withdrawn to invest in qualifying green projects. Up front, a maximum of 50% of the value of the emissions reductions from a project can be withdrawn to pay for its start up costs, with the balance earned back over the life of the project as it delivers its verified reductions before 2017. Qualifying projects will need to make investments in their own infrastructure or to fund green projects that lead to real, verifiable and incremental emissions reductions in Canada. If after two years a company has not committed its funds to a qualifying proposal, the money that is not spent will go into a Green Investment Fund. This fund will have a mandate to give priority to near-term reductions. At least 80% of these funds will be invested in the province or territory from which the money was collected. • • • 16 So what will this mean? If a large industrial emitter – we’ll call it GasCo – is 100 tonnes over their carbon budget at the end of 2008 they will be required to make a deposit of $2000 into their own Green Investment Account. To reduce their deposit the next year and each subsequent year, GasCo proposes an energy efficiency project that will reduce their carbon pollution by 10 tonnes starting in 2010. GasCo has two incentives to develop this project: 1. By reducing their carbon pollution by 10 tonnes they avoid making future deposits in their GIA at $20-$30/tonne every year. 2. They are rewarded for reducing their carbon pollution because they earn back $10/tonne of reduction from their own account every year over the life of the project. So how would this second incentive actually work? Starting in 2010, the proposed project will lead to 10 tonnes in reductions each year. Therefore, the amount returned will be: 2010 2011 2012 2013 2014 2015 2016 2017 Total: 10 tonnes x $10/tonne = 10 tonnes x $10/tonne = 10 tonnes x $10/tonne = 10 tonnes x $9/tonne = 10 tonnes x $8/tonne = 10 tonnes x $7/tonne = 10 tonnes x $6/tonne = 10 tonnes x $5/tonne = $100 $100 $100 $90 $80 $70 $60 $50 $650 So the total value of the anticipated reductions in carbon pollution over the life of the project will be $650. As a result, GasCo will be able to withdraw $325 right way from their own account to pay for the start-up costs of the project and an additional $325 over the life of the project as its emissions reductions are verified. 17 E. BUILDING CARBON MARKETS As part of our plan, we want to ensure that Canadian companies have access to and learn to make money on the emerging global carbon market. To begin, we will encourage domestic trading by enabling companies that make greater reductions than they are required to under their carbon budget to sell their excess carbon budget to other large industrial emitters. With this additional incentive, companies will make deeper reductions than needed to meet their own carbon budget so that they can sell their extra reductions for a profit while also earning back past deposits in their GIA. We will also implement a domestic offset system, starting no later than Jan 1, 2009. This system will provide large industrial emitters with access to a broader pool of low-cost emission reduction projects. It will also allow a wider crosssection of Canadian companies (e.g., clean power, landfills, agriculture and forestry) to participate in our domestic carbon market. To ensure environmental integrity, offset credits will need to be ‘incremental’, i.e., they will be granted only to new projects that will not have occurred in the absence of the offset system. To earn credits, reductions will have to count towards meeting Canada’s Kyoto obligations. Large industrial emitters in Canada will also be able to buy project-based Kyoto-certified international emissions credits. Companies will be allowed to use these credits to reduce the amount deposited in their GIA by up to 25%. These projectbased emissions credits represent a real, verified and incremental reduction in global carbon pollution – contributing just as much to preventing climate impacts in Canada as domestic reductions. International investments will be allowed only in projects that achieve real and incremental carbon reductions, i.e., investments in so called “hot air” will not be allowed. Climate change is a global challenge that will require global solutions. The international carbon market is an important tool to begin to link together national carbon reduction strategies into a truly global approach to this challenge. The ability for Canadian companies to participate in international markets is critical for a number of reasons: 1. First, international markets provide an outstanding opportunity to showcase new Canadian technology and create new markets for Canadian exports of green technologies; 2. Climate change is a global problem; a tonne of carbon pollution emitted in China or India has the same effect on our atmosphere as a tonne emitted in Canada. So investing in clean growth for developing countries helps us as much as it helps them. 3. Providing access to global carbon markets will allow Canadian companies to invest in low-cost emission reduction projects around the world, and thus help them to meet their carbon budget cost-effectively; 4. Establishing a single global price for carbon is important because it equalizes the incentive to act everywhere in the world; and 5. Canadian investments in emission reductions in developing countries are an important lever to allow Canada to persuade such countries to take on stronger commitments under future phases of Kyoto, which will be essential for addressing climate change in the longer term. 18 Continuing the summary, • • Domestic trading will be encouraged by allowing companies that make greater reductions than required to sell their excess reductions to other large industrial emitters, and by implementing a domestic offset system. Large industrial emitters in Canada will also be able to buy project-based Kyoto-certified international emissions credits to reduce the amount that they are required to deposit into their GIA by up to 25%. 19 F. CONCLUSION This approach is fair to all companies and sectors. It is pragmatic – allowing us to make immediate reductions in the carbon pollution that is produced by our large industrial emitters without incurring unnecessary expenses and complications. It is environmentally sound – recognizing only real, verified and incremental emission reductions. It is consistent with the Kyoto Protocol and its trading mechanisms and will allow us to make significant progress towards meeting our Kyoto target. It is market-based - providing clear and predictable regulation and appropriate incentives for action, it will also unleash the full power and innovative strength of the private sector. Finally, it provides an unparalleled opportunity for Canadian industry to make strategic investments in green technologies. It gives us a real competitive advantage as we move towards full participation in and harmonization with the emerging international carbon market. Climate change is a great challenge – but Canada is a great nation, ready to meet that challenge. I am confident that Canadian businesses will seize the opportunity to be world leaders in green technology. And I am confident that Canada will seize the opportunity to become a green energy superpower. 20 Annex I: Impact on the Cost of a Barrel of Oil from the Oilsands According to the June 2006 update from the National Energy Board Estimated operating costs range from $6 to $14 per barrel for bitumen and $18 to $22 per barrel for synthetic crude oil. The estimated supply costs ranges from $14 to $24 per barrel for bitumen and from $36 to $40 per barrel for synthetic crude oil. Supply costs include operating costs, capital costs, taxes, royalties and the rate of return on investment. (These figures are all in Canadian dollars.) Under current projections, the oils sands will produce about 65Mt of carbon dioxide equivalent emissions in 2010 (8% of Canada’s 830Mt of total emissions). This represents approximately 45% of the total projected emissions from the upstream oil and gas sector. If oil sands producers are responsible for reducing their emissions by 46%, like the upstream oil and gas sector as a whole (see Table 1), then based on an average of 0.1 tonnes of CO2 equivalent per barrel of oil, and a reduction cost of $30/tonne, the cost per barrel will be about $US1.17USD. 21 1 When we talk about Energy Intensive Industries we are only referring to the most highly energy-intensive industries – those that were included in the category of “Large Final Emitters” in Project Green. In a proposal entitled Fair Share, Green Share: A Proposal for Regulating Greenhouse Gases from Canadian Industry. 3 2 See The Case for Deep Reductions: Canada’s Role in Preventing Dangerous Climate Change (David Suzuki Foundation and Pembina Institute, 2005). 22